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HMRC collected a record £157.2bn from VAT bills in 2021/22*, a 55% increase on the £101bn collected in 2020/21, after businesses were forced to make up for VAT payments they deferred during the pandemic, says national accountancy group UHY Hacker Young.
HMRC’s VAT income has risen sharply after the rate of VAT paid by the hospitality sector increase to 20% on 31 March 2021. The rate was temporarily reduced to 5% during the pandemic to ease the burden on pubs, restaurants and hotels forced to close during lockdown.
Additionally, the Government introduced a VAT holiday between March and June 2020 to support businesses hit hard in the early stages of the pandemic. The holiday was later made more generous, allowing many businesses to defer their VAT payments into smaller instalments until March 2022.
Sean Glancy, Partner at our London office, explains sharply rising inflation has also played a role in driving up the amount HMRC collects in VAT.
Sean Glancy says: “For all the good the VAT holiday did at the time it was introduced, it’s resulted in businesses paying the most VAT in recorded history the year after.”
“The VAT holiday saved a lot of businesses in 2020 but it effectively just pushed the bills from one year into the next. Those increased payments in 2021 hurt for some of them.”
“If inflation continues to run out of control the amount paid in VAT is only going to rise. Cutting VAT temporarily is one option the Government has to ease the cost of living crisis for individuals and businesses.”
*Year end March 31 2022. Source: HMRC
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